JMRE and the Community

What Real Estate can I buy for under $100K

Do you have a small budget but still want to get into the property market? Well the good news is there’s still options out there.

If you live in Australia’s capital cities in 2015 with a $100,000 budget it may buy you:

A car space

A beach or boat shed

A permanent cabin/van in a caravan park

The fact is median housing prices in our major metropolitan hubs are now far beyond a cool $100,000 – add another zero and you are in the market for a well-located starter home in Sydney.

The last time Sydney’s median house price was below $100,000 was in 1986, ($98,325 to be precise), Melbourne and Canberra were below $100K in 1987 ($89,500 and $90,125 respectively), Brisbane in 1989 ($96,000), Adelaide in 1990 ($97,200), Perth in 1991 ($99,500) and Hobart in 1992 with a median house price of $95,825, according to state and federal land value data.

What’s available in 2015 for $100,000?

What are the pros and cons of these super cheapies? Are they for everyone? If not, who do they suit?

Conduct a national search on realestate.com.au setting a maximum of $100,000 – and no other criteria – and you’ll see pages of possibilities, most of it vacant land.

Sift through the listings and you soon see a trend.

Regional Tasmania, South Australia and Queensland currently have the most pickings for someone on a teeny budget.

As you’d expect the homes generally need some TLC and are located in remote areas, which include outback mining service town Dysart in the Sunshine State; George Town, 35 minutes’ drive from Launceston, and McCracken in SA, about 100km south of Adelaide, when we searched on July 28. The money often buys you three bedrooms and a generously-sized suburban block.

Regional Tasmania, South Australia and Queensland currently have the most pickings for someone on a teeny budget.

And even if you want to buy in Sydney but can’t afford its lofty prices, buy 400km to the southwest where, at the time of writing, there was a two-bedroom unit just shy of the NSW-Victoria border for just over $100,000.

Is it the right option?

Maybe, but not for everyone and not without a few parameters, cautions Richard Wakelin, Director, Wakelin Property Advisory in Melbourne.

“Typically they are houses in remote parts of Australia, or one-bedroom studio units in high-rise blocks in a capital city,” he says.

“One can even buy a title for stand-alone car park space and many of these sell for five figures and if you’re buying a property as a home for less than $100,000 and it meets your lifestyle needs, then good luck to you.”

However, if your aim is to make money from buying property, you should tread very carefully before selecting these ‘cheapies’, Wakelin says.

“Investors earn a return in two ways – through capital growth and through rental income – and a property’s return is generally skewed towards one or the other.

“Capital growth is the most important feature. A strong rate of capital growth – say 7% a year – can result in a property doubling in value in 10 years. In contrast properties with high rental yields may give you good cash flow, but they won’t increase your wealth.”

“Invest your $100,000 in them and the property is unlikely to go up in price very much. Meanwhile you may earn a high yield, possibly up to 10%, but once you’ve paid the mortgage and other expenses it doesn’t leave you much of a return.”

Low-priced properties always exhibit low capital growth.

Justin Alpar, Principal Advocate, Your Property Advocate in Brisbane says there are pros and cons of properties under $100,000 today:

Pros:

Affordable

Lower risk of investment as the price point is low

Can provide excellent rental yields

Cons:

Can be more difficult to get finance due to some being very small apartment sizes

Milly Brigden, Co Founder of Property Is adds these further ticks and crosses:

Pros:

Gets you a foot on the ladder

Can quickly grow in value if nearby rail, mines or infrastructure is planned

Can make ideal homes for renovator investors

Cons:

Can be high-risk if local regional jobs are lost

Population may be static or shrinking, which limits rent growth

May not suit a risk-adverse buyer

The benefits are lower cost of entry into the property market and often good rental yields.

“Is it for everyone? No, it may suit someone with a lump sum that wishes to invest in property and receive strong rental yields,” Alpar says.

Buyers who want a lifestyle change and can work remotely or find work in the cheapie’s local region may benefit from such a low-priced property purchase if looking for a property to owner occupy.

“The property may be in a remote or far away city/town so the buyer will need to do their homework on the area and local market.

“Who it will work for is someone who is priced out of market in highly unaffordable cities or potentially someone looking for a cheap holiday house in a remote location.”

Bridgen says thorough research is essential. “If conducted investors can gain if something special is occurring in the area,” she says.

“If a rail link or mine is opened, the town will transform and property values will rise with it.”

But she stresses many super cheap properties are not ‘set and forget’ properties. “I would not recommend these to anyone risk adverse or who does not have a very thorough understanding of the property investment market.”

Caroline James

17 August 2015

Why it's OK to Rent

The current climate of housing prices in Australia is causing controversy and concern throughout the nation.

With prices in Melbourne getting further out of reach for first time buyers, it’s not surprising those buyers are feeling the pressure.

Stephen Fitzsimon from Melbourne Realestate says the idea that everyone should eventually own their home is misguided.

Young Australians have historically been encouraged to ‘get a roof over their heads’ as soon as possible into their working lives but Fitzsimon says the Australian market supports investment property ownership rather than home ownership.

“Plenty of first property buyers will rent a home to live in, often for years after purchasing their first investment as the tax breaks on investment properties and the affordable rental market makes paying off a mortgage while renting the most financially solid option,” he says.

Fitzsimon says another factor to consider is the importance of location.

“It’s more affordable to rent in popular suburbs than it is to own.”

Some experts may argue that if a person is serious about owning a property they should make the sacrifice and move to a less desirable area. However home ownership isn’t necessarily a goal for everyone.

It’s more affordable to rent in popular suburbs that it is to own.

It’s perfectly acceptable to prioritise quality of life and if non-home owners are happy renting in areas they love to live.

Often weekly rent is a lot less than mortgage repayments on a similar property, so renters can come out in front from a cash flow perspective.

Fitzsimon recommends renting if location is something that an individual can’t compromise on.

Consideration should be given to common property buying risk as well.

Uneducated buyers can sometimes make mistakes when they first enter the market. Fitzsimon says one of the biggest mistakes is buying and selling too quickly and losing the stamp duty on the sale of a property. He says this happens when people rush into buying a house, realise they can’t afford it, pay the $25,000 odd stamp duty on the home and essentially lose money by not waiting for the investment to appreciate.

Fitzsimon also says that first home buyers will often rush in and buy homes that are south facing or require more renovations than they first thought. These can turn out to be very expensive mistakes.

Today’s changing job market and the casualisation of the workforce can also hamper buyers’ efforts to save for a deposit and feel confident to enter the property market.

Today’s changing job market and the casualisation of the workforce hampers buyers’ efforts.

Fitzsimon says saving a deposit is the easy part of buying a property – guaranteeing a steady income for the next 20 years to pay it off is the hard part. If a steady income and financial security is uncertain, renting is certainly a better choice he says.

Often home ownership is not always the best case scenario, even for people who earn a decent income. Renting provides financial and geographic freedom, less responsibility, opportunities to live in areas that would be unaffordable to own and can even assist with the purchase of a first property.

Ownership of a property is certainly something everyone should consider but if the circumstances don’t line up or lifestyle choices don’t permit it, the experts say it’s perfectly okay to rent.

Carly Jacobs

11 August 2015

RBA Holds Rates Steady as Market enters Spring Seassion

The Reserve Bank has kept rates steady at 2% as the property market gears up for the spring season.

At its monthly board meeting the RBA maintained its ‘watch and wait’ approach amid a weakening share market, concern over the impact of a slowdown in China and the ongoing Greek debt crisis.

The widely-anticipated move keeps Australia’s official cash rate at its lowest ever. Low interest rates are acting to support borrowing and spending.

RBA Governor Glenn Stevens says the economy continues to expand at a moderate rate and while growth is below the longer-term average, Australia has seen reasonably strong growth in employment and a steady rate of unemployment in the past year.

“In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months,” Stevens says in a statement.

“Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and contain risks that may arise from the housing market.

“The Board today judged that leaving the cash rate unchanged was appropriate at this meeting.

“Further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”

Home values grow, but pace more sustainable

The RBA decision comes as the CoreLogic RP Data August Home Value Index shows home values continue to rise, with the combined capital cities recording a 0.3% growth rate for the month of August.

Home owners and prospective buyers across Australia will welcome the sustained low interest rate setting.

CoreLogic RP Data Head of Research Tim Lawless says while the Sydney and Melbourne markets continue to perform at above average rates, the rest of Australia’s capitals are recording more sustainable levels of growth.

“August housing market data from CoreLogic RP Data together with recent data on investor credit growth would have been welcome news to the Reserve Bank when they deliberated on the cash rate setting today,” Lawless says.

“The slower month of housing data may indicate that the housing boom in Sydney and Melbourne is starting to slow and investment lending is starting to moderate in line with APRA guidelines.

“While the Sydney and Melbourne housing markets don’t need any further stimulus, other capital cities as well as regional markets have recorded much more sustainable growth rates.

“Home owners and prospective buyers across Australia will welcome the sustained low interest rate setting which will continue to spur buyer demand and help to offset the effects of softer economic conditions outside of Sydney and Melbourne.”

Market set to bloom in spring

Spring is traditionally the busiest time of year for the property sector and experts predict this year will be no different.

“We’re anticipating more people will take out home loans this mortgage season than any other time this year – 163,105 loans are predicted this spring (September to November 2015), according to our research on total number of home loans financed for owner occupiers, including non-first home buyers and those who are refinancing.

“In addition, the property market exceeded expectations in autumn and winter this year, with the number of owner-occupied home loans financed up by almost 14,000 on the same period last year.

“Coming out of a very strong winter period – which is traditionally a quieter time for real estate sales – only indicates that the property market remains strong and that buyers can expect to face a fair share of competition on the auction circuit this spring.”

Buyers can expect to face a fair share of competition this spring.

Hutchison says while the RBA unsurprisingly left rates on hold today, home owners should already be preparing for 2016 when rates are expected to rise.

Renovators delight in low rates

One pocket of the market reaping the benefits of low interest rates is renovators, with more and more Australians taking up the tools to refresh their homes.

The Housing Industry Association’s Renovations Roundup for winter 2015 found the volume of home renovations increased by 1.2% in the past year, picking up from a post-GFC downturn.

“The 2011-13 renovations downturn was the third worst on record, involving a reduction in activity of 15.6 per cent,” HIA Senior Economist Shane Garrett says.

“However, more recent strong dwelling price growth has lifted home equity in the Sydney and Melbourne markets, the local renovations industry reaping the benefits.

“Other markets, however, continue to suffer from the combination of subdued dwelling prices and low household sentiment. The burden of red tape and regulation is also frustrating growth in the market, with nearly one half of renovators identifying taxation and government charges as a serious source of cost pressure.”

Garrett says more and more home owners are expected to turn to renovating, with renovations tipped to increase by 4.5% this year, 0.4% in 2016 and 1.8% and 3.4% in 2017 and 2018 respectively. The total value of future renovations is expected to top $31 billion.

Sarah Millar

1 September 2015

Prioritise your Styling when Selling

If your time and budget are limited, you need to prioritise. Shaynna Blaze shares her expert interior design advice!

Sometimes it can be overwhelming getting your home ready for sale, especially if it’s in need of updating. Follow these tips:

The first thing you need to do is de-clutter. That way you can see the bones of your house. Sometimes just removing your “stuff” , including unnecessary items of furniture, can make a huge impact.

Assess what actually needs replacing and what can be spruced up with a good clean or a coat of paint. If your place is in reasonable condition, clever styling and accessorizing might be enough to get it over the line.

Buyers like to see new looking kitchens and bathrooms, it gives a house a ‘clean’ feel. Bedrooms are a private space, which they will want to personalize anyway, so simple dressing, to showcase the size of the room is could be enough.

Target a few areas - If your house is in dire need of renovations – the good news is you may not have to update everything. Target areas to show buyers what can be done… they can finish the rest when they move in.

Make sure the front entrance is looking its best - as well the main living area, as thats a big selling point for buyers. If your kitchen is in good shape, you can get away with a dated bathroom… if both are bad, spend money on the kitchen first.

The trick is to make people forget about the “just ok” parts of the house by making the key areas really stunning.

Shaynna Blaze

From Selling Houses Australia

Trends that Resurface Every Winter

Whether you like it or not, it cannot be denied that the cooler months have a huge effect on your behaviour.

No longer are days spent lounging around on the deck with the barbeque sizzling and a glass of champagne in hand. Now, it’s all about snuggling up indoors with the fire on and a hot mug of tea held close.

However, with this change in behaviour comes a change in the way we look at our homes. And while the trends may come and go, there are three ways to prepare your interiors for winter that people keep coming back to: layering, lighting and entertaining.

Layering

All of these elements will provide interest, depth and a sense of abundance to your space. Some important points to remember: use a variety of widths and heights, go for balance (not symmetry) and pick a statement piece for each space. Embrace colour and texture like knits, plaid and linen.

Lighting

When it’s summer and it doesn’t get dark until late, lighting isn’t top of mind, but when it’s winter, things change. Create a sense of warmth and coziness with mood lighting, such as table and floor lamps. Also put your candles to good use and create that lovely glow with wintery, spicy fragrances.

Entertaining

Instead of entertaining in your alfresco area, the arrival of winter means you’ll be spending a good amount of time in your living and dining room. This means it’s time to bring out the slow cooker for beautiful soups and stews served in big mugs and bowls.

Put a bigger focus on beautiful napery as your style goes more formal in the winter months.

Naomi Findlay

16 June 2015

Investor Market Continues To Grow

The latest housing finance figures released by the Australian Bureau of Statistics more investors securing financing for properties, while owner occupier financing has dropped.

Investment housing commitments increased 1.6% in January, making almost three years of consecutive monthly increases.

The figures also show, in trend terms, owner-occupied finance commitments decreasing by 0.1% in January 2014, after a small December increase of 0.1%. Owner-occupied finance commitments including refinancing increased by 0.2%.

Queensland enjoyed the largest increase – still at only 0.6%. The Australian Capital Territory fell 1.6% and South Australia was unchanged.

Signs point to a robust market for investors, but a tougher climb for first home buyers, despite eight interest rate cuts since November 2011.

Venessa Paech

March 14, 2014

Melbourne To Be Our Biggest City

The latest population figures suggest that Melbourne is on track to become Australia’s largest city, with Victoria set to experience strong population growth over the coming 50 years.

Australian Bureau of Statistics population projections show Melbourne’s population is expected to surpass Sydney’s by 2053.

But Melbourne could be Australia’s most populated city by as early as 2030 if the country sees high end growth in coming years. The projections pitch Melbourne’s headcount at 8.6 million by 2061 and Victoria’s population is projected to increase a staggering 83% in the next 50 years – from 5.6 million in 2012 to 10.3 million in 2061.

The ABS looks at a number of factors to predict population, including fertility rates, net overseas migration and life expectancy. The most conservative estimates still predict Melbourne hitting 7.6 million people by 2061.

Victorian Minister for Planning Matthew Guy said the state government is working to support that growth, with plans to become “a State of Cities, not just a city-state.”

The growth invites significant opportunities in the housing sector, for buyers, sellers and investors; with affordability, access and lifestyle needs likely to remain under scrutiny for in coming years.

“Access to appropriate and affordable housing is a very important factor in maintaining the standard of living expected by the community,” said Housing Industry Association Economist, Geordan Murray.

“Throughout the last decade housing supply policy has not been given the priority deserving of issues that play such an important role in our economy and in the welfare of the community.

“The ABS projections send a clear message to policy makers around the country. Ensuring that the supply of new housing can meet the needs of a growing population is an urgent and ever-present policy priority.”

Venessa Paech

November 27, 2013

Valuer or Negotiator?

The simple task of selecting an agent to sell your home can become problematic very quickly. Whilst there will be many agents who pitch for your business, knowing which agent is the right agent won’t necessarily be a straight-forward decision. Selecting the right agent becomes all the more challenging if you don’t know how to identify a good real estate agent from one that over-promises and under-delivers.

Many people will interview real estate agents and focus on two seemingly plausible selection criteria: the price the agent feels the property is worth and the agent’s selling fee.

Even though most people select their selling agent using these criteria, it is flawed and often leads to the wrong agent being selected. The agent is not a valuer. All agents whom you interview will have an opinion on the likely value of your property. And that’s all it is, an opinion of value.

Ultimately, a real estate agent’s job is to maximise the sale price on behalf of the seller, in a timely fashion. If all you want is a price on your home, call a valuer, not a real estate agent.

Therefore, when interviewing and selecting an agent, you need to examine the overall proposed selling strategy – both the agent’s proposed marketing and negotiation process. The best agent is the one with the best selling strategy, not the highest price quote.

The name of the game when selling is for the agent to negotiate the maximum price from all interested buyers. If the owner signs up with the most price optimistic agent and commits to a $10,000 advertising campaign over 90 days hoping the agent is telling the truth around price, it will most likely end in tears.

Often, many people will sign with the agent using a selling strategy that they don’t like, such as auction, purely because they like the price the agent quoted.

This seems simple enough. However, if you interview real estate agents and don’t bring the selection criteria back to the proposed selling strategy, you will plunge into a world of confusion.

So long as the agent has a thorough understanding of property prices in the respective market place, that’s a sufficient starting point to then begin examining the agent’s selling strategy.

Any prices quoted by agents should be backed by sales evidence. A proposed selling price without supporting sales evidence quoted by an agent should be taken with a pinch of salt. It’s easy for an agent to quote a high price to a property seller, but it takes genuine knowledge and skill to defend the price with sales evidence to a buyer when the home hits the market.

Finally, never tell the agent what you feel the home is worth. We are all susceptible to believing what we want to hear. Keep the focus on how the agent will negotiate the highest possible price from every buyer for you.

In terms of commission, fees and advertising costs, the cheapest agent is the one that leaves the most money in your pocket after the sale has occurred. An agent that cuts their commission by 1% to get the listing is one that likely cuts price as opposed to builds value.

Ask yourself, when an agent is negotiating the sale of your home, do you want one that cuts price to get a deal done or one that builds value into the offering? It may feel good to get the agent’s fees down at the time of listing, but it won’t feel so good if a buyer is out negotiating your incompetent agent a few weeks later.

When it comes to paying real estate agents, cheap is rarely good and good is rarely cheap. The best agents maximise price in a strong market and protect price in a falling market.

Peter O’Malley

July 16, 2013

The Offer

When to decline and when to accept.

Deciding whether to accept or decline an offer can be the most challenging of times for owners. There is no rule book to follow on how to play the offer scenario when it arises. Receiving an offer is good news when selling as it means there is interest in your home. But no one wants to undersell either.

It leads back to a simple question with a complicated answer – how do we extract the best price without losing the buyer?

Whilst there are no certainties in a real estate negotiation, there are some principles that will help guide you through the process.

Market Price

What does the recent sales evidence suggest? As the seller, you may have a target number in mind, however how does that number compare with comparable recent sales? Does the offer seem fair, high or low?

Once you have established this very simple rating on the offer at hand, you will have a clearer view on how to handle the negotiation. Never base your response to an offer on the asking prices/price guides of other unsold listings. Always use recent comparable sales on which to base your response to an offer.

The most painful offer to accept is the one that is lower than the offer you previously rejected. Remaining calm, logical and unemotional during a negotiation is crucial to making the right call.

Context

Many sellers ask hypothetical questions prior to the home going on the market. Questions such as ‘What should we do if someone offers $1,000,000?’ or ‘What do we do if we get an offer in the first week?’

It’s natural that the seller poses these questions, but they can only be answered in context of the campaign.

An offer should rarely be judged against time on market. The digital age has made marketing real estate an almost instant process. An offer should be judged against the feedback of other potential buyer’s feedback and interest. If the first buyer on the first day makes an offer on your home, yes, this can be a very tricky situation. Make no mistake, it quite often happens this way.

The bottom line is, you cannot plan in advance on how to play the actual offer. The offer needs to be handled in the context of the campaign. This is where the success of the campaign will often rise or fall on the agent’s negotiation ability.

Format

There are three basic formats in which an offer can be made. Verbal, written and contractural. By law, real estate agents must disclose all offers to the sellers. Whenever an offer is made, it’s worth remembering that verbal and written offers are non-binding. Only a signed contract with a deposit cheque can be considered truly genuine.

If you accept a verbal or written offer that crashes, it’s best to consider it a non-offer going forward to avoid making mistakes when assessing future offers. Be wary of the high verbal offer – easy come, easy go!

Competition

If you are fortunate enough to have multiple buyers for your property, the whole equation becomes easier. Before you become complacent about having multiple buyers though, you must satisfy yourself that they are genuine buyers. To decline a contract offer in favour of non-binding verbal offer can put your campaign into a tailspin, quite literally.

Once a contract offer has been made, it’s best that all competing offers are submitted on a contract as a sign of genuineness. Any buyer that promises to pay more without signing a contract should be played cautiously.

Competition makes getting the sale easier, however, if you make the bidding process transparent such as a public auction or Dutch auction, you can easily undersell. Competing bids must never be disclosed as the buyers then focus on trying to beat the competition by $1,000. Use competition and confidentiality to extract every genuine buyers highest offer in a rapid time frame.

Non-price Agreements

Value for both parties can be created away from price. These potential agreements that add value for both parties are worth exploring if the offer is close to being acceptable. Issues such as delayed (or early) settlement, release of deposit, lease back, reduced deposit, inclusions or even some vendor finance on the difference can bring a negotiation together.

The more a real estate negotiation becomes about price, the less goodwill remains in place. If you are horse trading on such matters, always remember to take a concession if you give one.

Pre or Post Due Diligence

The pre-due diligence offer catches many sellers unaware. They accept the verbal or written offer and mistakenly think the property has sold. Suddenly, the building inspection brings up a raft of issues that causes the buyer to reconsider, or the buyer’s bank values the property for 10% lower than the agreed amount, scuttling the deal. Any offer that is made pre-due diligence must be considered an expression of interest rather than a formal offer. Take offers pre-due diligence seriously, but cautiously.

There Are No Rules

There are no rules around the governance of making, accepting and/or rejecting an offer. The property is not sold or purchased until contracts have exchanged unconditionally. It’s common for the seller to ask the agent ‘How long do we have to consider the offer?’ An offer is an offer until the owner countersigns a buyer’s unconditional contract or the buyer withdraws from the negotiation.

It’s a mistake to think that a buyer will leave the offer on the table for a prolonged period whilst the owner chases a better offer. Complacency can bite during a negotiation, even in a boom.

If you do reject an offer, it’s worth noting that declining an offer does not guarantee a higher offer being made in the future. If you accept an offer, you will never know if your Alan Bond was going to turn up next week, so don’t think about it.

Peter O’Malley

June 16, 2013

Why are you selling?

If you are like most sellers, the thought of selling your property can be daunting.

When it comes to getting the highest price for your property, these are the two things that, more than any others, will optimise your chances of success.

But before we get into those areas, do you mind if I ask you a personal question?

Why are you selling?

Now before you go thinking that this is none of my business, I put it to you that this is a critical question that you should answer before you begin the selling process, and certainly before you go talking to a real estate agent. Why IS important.

You see, this sale is all about YOU.

Will your life improve as a result of the sale of your property?

You should be able to discern a clear and positive reason why you will benefit from this sale.

For example, you might be selling to:

• Upgrade to a larger home to accommodate a growing family

• Reduce financial pressure

• Downsize to a smaller and more manageable home

• Move to a retirement village

In all of these cases your life should improve once you make the move. Human beings are goal-oriented creatures. We all need something upon which to set our sights. If there is a benefit to you in the long run, the selling process will be much easier for you. You should never put your property on the market with the thought, “If I get my price I’ll sell”, or something similar. Without a clear goal you are wasting your time, emotional energy, and money.

Your Reason

Be sure your reason for selling is confidential. No-one, other than the agent you trust, should know why you want to sell. If the buyers know you have a pressing reason for selling, this could be used against you. It is enough for buyers to know only that you want to sell. The reason is your business. Revealing it could weaken your position when you receive an offer.

The best agents will tell you how to give your property that special feeling that wins the hearts of buyers. With the right agent, and with your property looking its best, you will always get the highest price, but your reason for selling should be kept between you and your agent – and nobody else.

Gary Pittard

May 16, 2013

When Did You Last Inspect Your Investment?

Neglected or maintained?

Owning a quality investment property over a number of years can do wonders for building your wealth. As capital growth and rental returns inevitably increase, the pain of owning an investment property begins to reap the desired return for landlords. The financial pain of transactions costs and establishing the investment property are behind you. Future capital gains and increasing rental returns are fruits to be enjoyed by the landlord.

Yes, an investment property can offer dazzling dividends. However, like any investment play, where there is a chance of a gain, there is also a chance of a loss. If you are a long term holder of real estate, time will usually take care of the market in your favour. The market may ebb and flow in the short term, but it will often reward the long term investor, both in increased rent and capital growth.

What is absolutely heart breaking for a landlord is when the investment property is trashed, wiping off market gains. Not only is this heart breaking, it is common. So common, that if you have not physically inspected your investment property in the past 2 years, you would be well advised to do so.

Most landlords discover the true state of their investment property when it comes time to sell it. Initially they mistakenly believe they are selling a well-maintained property. They have formed this belief as it was stated in the property manager’s condition report over the past few years.

It is only when the owner physically inspects the property or the market feedback comes back that the property requires renovating that reality comes to the fore.

The palace in the landlords mind is a shambles in reality.

Reality

If you are a landlord, or about to become one, there are some realities that you should accept about owning an investment property or properties

Firstly, few if anyone will treat the home as well as you would. This can often be hard to accept for people that lease out their primary residence for whatever reason. The family home becomes an emotional investment. Outdoor areas in particular are often neglected. This is not a criticism of tenants, it’s a reality.

Secondly, investment properties experience wear and tear. When you allow wear and tear to go unchecked, you are complicit in the deterioration of your own investment. If you are a long-term holder of real estate, it is likely that both your property manager and tenants will change during your ownership. Consciously or not, their treatment of the property will be governed by the owner’s attention to detail. With investment properties, neglect equals loss.

A noble rule is to maintain the home as though you lived there. If possible, doing the minor repairs yourself can save dollars.

If you are constantly resisting repairs, keep in mind that a stitch in time saves nine. And ultimately money.

Thirdly, it is an error to rely solely on the agent’s written or verbal feedback about the condition of your property. What the agent finds acceptable may be totally unacceptable to you. Unless you are present at the property with your agent outlining your expectations, there is an increased risk of a disconnect in expectations. Many investors have eventually inspected their investment property and been shocked to witness the true state of the property first hand. The pain is magnified further given the state of the property bears no correlation to the condition reports they have been sent over the years.

As the real estate industry looks to increase the number of properties per property manager, the upkeep and maintenance of the respective property can be neglected. As a landlord, it is your responsibility to ensure that this is not the case with your property.

Finally, owning an investment property is not a set and forget proposition. It is a mistake to turn your back on an investment. Property managers are often hard working good people. They don’t need to be micro managed. The property manager manages the property but the landlord manages the standard expected of the property manger. If you fight the property manager on every repair and maintenance issue, the property manager will simply stop telling you about such issues & asking you to fund repairs. Then one day the renovated investment may be a renovators delight.

If these realities seem too confronting and demanding, owning an investment property may not be for you. To suggest that investing in residential real estate is a guaranteed way to build wealth is only half the story.

February 12, 2013

Australia's Population Growth & Property

In the short term, interest rates, unemployment, supply and demand, and market confidence all affect property prices. But in the long term however, property prices are driven more by population growth and affordability.

Based on conservative assumptions of population growth, Economists BIS Shrapnel estimate that Australia’s population will be around 28.3 million people by 2026. This represents about 5.7 million additional Australians living in this country within the next 14 years. A little over half of this number will be immigrants and the balance will be due to net births. Based on the Australian average of 2.5 people per household, this translates to a need for 2.3 million new homes. About 60% of Australians live in our largest five capital cities. Supply and demand in these five cities will keep pushing prices up on well-located properties in the more desirable suburbs.

About 60% of Australians live in our largest five capital cities.

Also Asia represents about half of the world’s population. Because of Australia’s proximity to the Asian region and the demand for our resources we stand to benefit enormously from any growth in this area.

As our population and our wealth as a nation continue to grow, I am confident that Australia has a prosperous future. Our major cities will continue to grow and demand for properties particularly in the inner to middle suburbs will continue to increase. Suburbs which provide good transport, good schools and better infrastructure will benefit the most. This ever growing increase in demand will eventually push housing prices higher in these preferred areas. There is no guarantee prices will go up in all suburbs. If developers in some outer suburbs get carried away and build more housing than there is demand, prices may even fall in these areas.

Now is a good time and an opportunity to buy well located property that will appreciate in value in years to come.

Paul Kounnas

January 12, 2013

Your Asking Price

Have you ever wondered what’s important when setting the asking price for your house?

Only one thing really matters and that is how your house compares with similar properties which have recently sold or are competing with yours for the buyer’s interest.

With the wealth of online information available via the internet today, buyers are better informed than ever before. Most of them will have done their homework long before they enquire about your property, and they will know what the property is worth in the current market in the areas in which they are looking to buy.

Try to keep your personal emotions under control when deciding on an asking price for your property. Your personal attachment has no relevance to the price you place on your home when you put it on the market. This phenomenon is known as the “Endowment Effect”. In contrast to this, don’t allow the stress of wanting to move quickly lead you to under price your home.

Selling your home can be a very emotional experience but it is important that you keep your emotions under control when pricing your home to sell. Think with your head and not with your heart and try to keep your emotions out of the decision.

Beware of adding too much to your asking price simply because you need a certain amount of money out of the sale. It’s also important that you don’t overestimate the value of improvements when setting your asking price.

A competent and professional real estate agent will be able to advise you of the likely range in which your property will sell and provide you with relevant recent sales data of properties comparable to yours to support their advice.

In the end however, your asking price is completely your decision.

Paul Kounnas

October 14, 2012

Passed In- Why Failing To Sell At Auction Is Bad For Your Wealth

As a property seller, it is extremelydisappointing when the price interest in your home falls short of your hopes & expectations. Failing to achieve your price target will happen in one oftwo ways – private failure or public failure. Failing privately means the agent submits the current buyer’s price interest/offers on your property to you and you decline the offers. You then decide to continue looking for another buyer or you withdraw from the market. Either way, your business remains your business.

When this happens at a public auction, whilst you may be disappointed, the failed campaign has more than likely damaged the value of your property. Your business is now the neighbour’s business and when the result is picked up by the newspapers, it basically becomes everyone’s business. It becomes common knowledge that you tried to sell at auction and failed. Even more damaging, the price that you declined to sell for becomes the published price in a multitude of publications and media outlets.

When faced with this logic, most agree that failing to sell at auction is not a good look for the seller. But what is often overlooked is that no one has ever paid upfront advertised fees, booked an auctioneer for 5 Saturdays time and expected the auction to fail.

Everyone who has ever embarked on an auction campaign has done so because they expected their property to sell.

So you have a scenario where 100% of people who have signed up to sell by auction, do so in the knowledge a failure to sell will reflect poorly on the property.

The auction clearance rate across Sydney was around 50% in February.

Therefore, 50% of all properties that went under the auction hammer failed in front of the interested buyers & the neighbours. As if the auction was not traumatic enough, the homeowners could read about it their failed auction in the Sunday paper.

Where does the auction stop?

It is shaping up as a market reality that there is not going to be a boom to begin 2011. The market finished 2010 in a sluggish mode and has opened up as such in 2011, besides the odd sale that exceeds all expectations.

A wonderful question to ask yourself in a cooling market is – how do you have an auction with 1 buyer? The answer is you can’t. That is a fairly simple question to answer though.

The second question that many people don’t ask is what happens if a cashed up emotional home buyer and a bargain hunter are the two bidders for your home? The answer is the emotional home buyer will stop one bid above the bargain hunters last bid. Due to the fact the bargain hunters last bid is likely to be well below the seller’s reserve price, the property will then be passed in to the emotional home buyers.

The auction has stopped.

The emotional homebuyers have just been alerted to the fact that they were about to pay more for the property than anyone else in the open market is prepared to pay. In this situation, if the emotional home buyer was prepared to pay $50,000 more than the bargain hunter, the seller stands to unwittingly lose up to $49,000, as a lack of competition stalls the auction. This is the practical reality of public auctions – they require multiple bidders all prepared to pay above the seller’s reserve price to work. The romantic notion that 10 bidders will turn up to bid at every auction is more fiction than fact.

Lets say the seller hangs tough though. The auctioneer will sometimes disclose the sellers reserve to the market/crowd, usually in the form of a vendor bid.

The emotional home buyer cannot believe their luck – the reserve price is lower than they were originally going to pay for the home.

Sold.

And the sellers are then told by their agent what a great result and how lucky they were to sell on the day in “this climate”.

Only the emotional buyer knows that the public failure of the auction drove the final selling price down. The seller will never know and the agent does not want to know.

Market Conditions

In a buoyant environment where multiple emotional home buyers are turning up to outbid each other at auction, the risk of public failure does not loom as large. The question of whether you sell for the highest price or a high price then comes into play.

It can be an achievement finding one good buyer for your property at present, so why choose a strategy that requires at least 2 good buyers?

If the public auctions continue to flounder, sellers are putting the sale of major assets through the most risky sale process available. The advertising money is at risk, the highest bidder’s confidence in the property is at risk, achieving the best price is at risk and the public deadline (that was meant to pressure the dozens of buyers to act) now hangs over the sellers, pressuring the one party it wasn’t meant too.

During the GFC which was one of the most challenging periods to sell real estate, many sellers gave agents simple instructions – “if you can sell our home to a buyer for a price that we are satisfied with, we are happy to pay your commission. If you cannot do that, we don’t want to you anything”

Vendors Prefer to go private

Home owners appear to be losing faith in the auction system as the best way to sell property, with new research showing private sale methods are closing more deals and returning higher sale prices.

The figures come as last weekend’s auction clearance rate has been revised down to 52 per cent, the worst performance posted this year and only marginally better than the sales level seen at the end of 2011.

Yesterday, the clearance rate was 60 per cent for the 328 auction results reported to the Real Estate Institute of Victoria. But with the outcome of another 38 scheduled auctions yet be reported, the sales figure is likely to be downgraded later.

This three bedroom apartment on Toorak’s Trawalla Avenue passed in on a vendor bid of $1.2 million without attracting any genuine interest from buyers. Photo: Ken Irwin

The REIV also released its June quarter property price data yesterday, which suggests Melbourne’s property market has continued to underperform despite hefty cuts in the interest rate.

While the metropolitan median house price nominally rose 2.9 per cent over the three months to June, the REIV has cautioned that the movement was due to a revision in the March quarter data rather than growth. It rose 1.9 per cent for units.

”Melbourne’s median hasn’t changed in the last six months, which suggests the market has plateaued and conditions are likely to remain the same until confidence improves,” spokesman Robert Larroca said.

The figures also reveal that the sharp decline in the number of auctions being staged is partially related to a shift towards private sales in recognition that they deliver better results.

Auctions accounted for only 30 per cent of transactions in June 2012, down from 35 per cent at the same time last year.

Meanwhile, properties sold by a private sale method experienced median price growth of 2.1 per cent for houses and 2.9 per cent for units. Prices for properties sold via auction dropped 2 per cent for houses and 2.6 per cent for units.

Given that more expensive homes in the inner and middle suburbs tend to be put under the hammer, these declines also reflect the fact that properties priced above the city’s median are bearing the brunt of the downturn.

Nevertheless, it’s clear that auctions are failing to meet the expectations of many vendors who continue to hold out hope that the system is the best way to ensure a sale and maximise prices.

A home owner now stands a better than 50-50 chance of selling at auction. But nearly 30 per cent of all vendors will also end up seeing their property pass in on a vendor bid, presumably after little or no genuine action.

That’s leaving a substantial portion of vendors with no one to even begin post-auction negotiations with. Securing the right of first negotiation with the highest bid doesn’t seem to be much of an incentive, unless would-be buyers are simply being bloody-minded in the hope of picking up a deal from a spooked vendor.

All that being said, it’s clear that some properties are continuing to perform even in the current climate. (Domain’s weekly coverage of the auction market is replete with examples.)

”The really good quality stuff is still selling and still selling well. Anything with any problems attached whatsoever is not selling particularly well, and in some instances isn’t selling at all. That’s just the reality of the market place,” said John Sommers, buyer’s advocate and valuer with McRae Property.

What can you claim on your rental property?

Make sure you know what deductions you’re entitled to claim as an investor .

With tax time approaching, landlords need to clear about what deductions they can claim in relation to investment properties.

No doubt you’ve had some expenses in relation to your property during the past financial year but they won’t necessarily all be tax deductible.

Before putting in your tax return, it’s essential that you understand what you claim on your investment property and what you can’t.

While you should, of course, do your tax return in consultation with your accountant, here are a few tips to help with your preparation.

KEEP RECORDS

Make sure you have records for every claim you make and that you keep those records for five years. Among the records you should retain are details of rental income and expenses, insurance details, depreciation reports, records of ownership and the costs of acquiring the property. Even if you dispose of the property, you should also keep records for five years.

REPAIRS AND MAINTENANCE

You can claim deductions for the costs of repairing and maintaining your rental property in the year you pay them as long as they relate directly to wear and tear or other damage that occurred due to renting out the property. You can’t claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage that occurred due to renting out your property. These are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for decline in value.

TRAVEL

Generally, the cost of travel you incur to inspect or maintain rental properties or to collect rent is an allowable deduction. However, you can’t claim travel if you go to the property for private purposes such as a holiday, or to carry out work when the property is not genuinely available for rent or to make repairs for damage that occurred before you made the property available for rent.

BORROWING COSTS

You claim as an immediate deduction the interest on a loan to buy a rental property or to buy land on which to build a rental property. There are other expenses that are deductible over a number of years including borrowing costs such as stamp duty charges on the mortgage, loan establishment fees and title search fees.

For a full run-down on the claims you can make in relation to your investment property, visit the Australian Taxation Office’s website at www.ato.gov.au or call 132 861.

June 4, 2012

Best Time To Sell

What is the best time of the year to sell one’s property?

Some say spring because the weather is great and the property looks its’s best. During spring time the garden is full of colour.

Many will say winter is a bad time to sell because it’s cold and wet and there’s no colour in the garden. But a well presented home can still look good no matter what season we are in.

It is true that there are fewer properties on the market in winter compared to the warmer summer months. But this does not necessarily mean winter is a bad time to sell. On the contrary you may find marketing your property in winter can present some good opportunities.

If you are selling in spring, your property is one of many on the market. the competition with a larger number of properties for sale may reduce your chances of getting a high price.

A smarter time to be selling is when there are few properties on the market competing with yours. This may well be during the winter months.

Real Estate sales are an all year round business. People sell for many reasons. They may get married, divorce, deceased, have babies, transfer interstate or overseas, or they may move to be closer to a certain school. No matter what time of the year people sell and buy property, is dictated by their particular circumstances.

Because everyone’s personal and financial situations are different the best time to sell your property is when it suits you. Don’t worry about the seasons. There are buyers ready to buy at all times of the year.

PAUL KOUNNAS

June 4, 2012

Technology Rules The Real Estate Industry

So much has changed in the past twenty years in the real estate industry! It’s easy to see why many agents have failed to keep up and why more dinosaurs are becoming extinct. Offices had no computers, just a typewriter and a photocopier! The Internet was unheard of, as was Facebook, Twitter, You Tube, Google, Google Maps, Realestate.com.au, iPads and smart phones!

Agents depended on newspapers to find buyers and buyers depended on newspapers to find properties!

Nowadays it’s a completely different story! One in six property searches is now done on a mobile device. Less than ten percent of buyers look in a newspaper (yet some agents still like to take tens of thousands of dollars each week from their clients to advertise their brand) and the property magazine is already a thing of the past.

84% of real estate agents already use social media. Newsletters are sent by email instead of Australia Post. And even Open Homes are on the way out, accounting for just 12% of buyer sourcing. So how will you find your next property? How did you find your last one? It’s a far cry from meeting an agent at an office window and spending day after day driving around in a car, looking at an endless array of unsuitable properties! I wonder how long before all our listings will be displayed in 3D?

June 4, 2012

Long or short term investment - How does property depreciation change things?

When investing in property for a short or long term it is important to understand the effects of property depreciation and how it can change an investment.

The Australian Taxation Office (ATO) allows investors to use two alternative methods of depreciation.

1- Diminishing Value Method- accelerates deductions quickly

2- Prime Cost Method- spreads the deductions out over time.

The long term intentions of the property investor will determine which depreciation method will be suitable for them. An investor must decide to use only one method; each method effects the long term cash flow position in a different way. Under the Diminishing Value method the deduction is calculated as a percentage of the balance you have left to deduct. The deductions will be higher in the first five years and diminish over time. This is because you are claiming a greater proportion of the asset’s cost in the earlier years of the effective life. Under the Prime cost method the deduction for each year is calculated as a percentage of the cost per year. This result in a more even spread deductions over a longer time. It depends on your investment strategy as to which method is best for you, you will need to consider how long you intend to hold the property and if you are going to need higher deductions now or in ten years time. Your accountant is the best person to discuss this with.

If an investor purchases a property for the purposes of a short term investment and planned to sell it in approximately five years, the Diminishing Value method may be a more attractive option to take, as it provides higher returns over the earlier years. If the owner was intending to retain ownership for a longer period of time then the Prime Cost option may be more suitable, as it provides a constant long term projection of what the investor’s tax deductions will be.

Through BMT’S experience it shows that most investors employ the Diminishing Value method on both long and short term investments as depreciation deductions under this method are cumulatively higher over the first five of ownership, when they need the deductions most.

Remember to discuss these options with your accountant, every property investor’s situation is different, your accountant will know which method is best for you.

March 6, 2012

Do I buy now, or Do I wait?

The biggest question for many right now may be: should we buy now – or should we wait? The concern of what’s happening to the economy, and how it’s going to affect the property market is on a lot of people’s minds.

But the fact is it’s still impossible to say what’s going to happen on those two fronts. What we do know is that over the next decade property prices will double. People have to live somewhere, whether they buy or rent; after food housing is the next most important item for any person. And whilst high-end property prices may stagnate for a few more years, the lower to middle range median properties in good suburbs of Melbourne will begin to grow as our population does.

If you are thinking of buying, you need to define your buying plans first and whether or not you decide to buy now or later at least you have defined a sensible plan that you can follow to buy a house that suits your needs, makes your family happier or lets you retire earlier.

In your plan you should include both financial and emotional outcomes. For example your financial outcomes may be whether you aim to minimize debt, or whether you want your home to help you build wealth. Examples of emotional outcomes are, what kind of property will maximize your needs, or your family’s needs and well-being.

Your plan will of course be very different depending on what stage of life you are at, whether your single, couple, have young family or older children are in mid life or retirement.

On an A4 page section out three columns. Place the following headings in each column.

1 – POSITION, 2 – PROPERTY and 3 – PRICE.

Start with your emotional outcomes and place your answers in the columns. It’s important to think in terms of a bigger picture. Imagine your life in five years from now. Try to allow room for change. Your best emotional outcomes are flexible ones. In terms of the financial outcomes in your life your answers will revolve around Growth (building wealth to give you choice later in life), Cash Flow (allowing you to live for the now), and Risk (allowing you to sleep at night).

Once you have completed your plan looking at each home becomes much easier and quicker because you know what you want. You can assess each home against your plan rather then looking at each home and then trying to work out a plan to fit.

If your plan is functioning well then the question asked at the start: ‘Do I buy now, or do I wait? Can be answered relatively easily. It’s not so much about getting the time right, but about the property itself. Then ask yourself does it meet my plan (Position- Property- Price) and does it feel right? Yes, Well then buy it! No? Then wait and keep looking.